Regulatory risk
Real Estate Investment Trust in Tanzania
27 May 2024
Tanzania Public Private Partnership Regulations Amendments, 2023
-
Legal Development 10 June 2024 10 June 2024
-
Africa
-
Regulatory risk
In our July 2023 update, we explored the Public Private Partnership (Amendment) Act No. 4 of 2023 (the PPP Amendment Act). This introduced significant changes to the Public Private Partnership Act Cap. 103 (the PPP Act) to boost private sector investment in Tanzania and streamline project delivery processes. To ensure harmonisation, the Government subsequently published the Public Private Partnership (Amendment) Regulations, GN No. 838A of 2023 (the PPP Amendment Regulations).
These amendments refine the review and approval processes in the original Public Private Partnership Regulations, GN No. 37 of 2020 (the PPP Regulations), to better identify the most promising projects, best aligned with the Government’s agenda. We set out below the key changes brought by the PPP Amendment Regulations and consider their impact on Tanzania’s PPP landscape.
Comparison of the PPP Regulations and the PPP Amendment Regulations
| Regulation | PPP Regulations | PPP Amendment Regulations |
| 2 - Interpretation |
Contained various definitions but lacked some essential ones. The following ‘old’ definitions have been replaced:
|
Clarifies and expands on various definitions covering key PPP components and stakeholders, including:
|
|
3 – Identification of solicited proposals 3A – Information to be contained in prefeasibility study 3B – Standard criteria |
|
|
| 8 – Commitment deposit | Following approval of a prefeasibility study for an unsolicited project, private parties were required to make a commitment deposit of an amount of up to three per cent of the estimated cost of the project to be conducted. | Deletes this Regulation, removing the upfront financial burden on private parties involved in unsolicited proposals. |
| 9(1) – Review fee by private party | Imposed a review fee of 0.1 per cent of the estimated capital cost of the project on private parties at the time of presenting the unsolicited proposal. | Amends this subsection to introduce a cap on the review fee. The fee is still set at 0.1 per cent of the estimated project cost, however it will not exceed USD 50,000, thus encouraging private parties to propose larger projects without the burden of high review fees. |
| 11(2) – Contents of prefeasibility study for unsolicited proposals |
|
|
| 12 – Approval and rejection of prefeasibility study for unsolicited proposals | Did not specify the detailed criteria that are required for prefeasibility studies in respect of unsolicited proposals. | Introduces stricter criteria which the contracting authority must consider for prefeasibility studies of unsolicited proposals, including requirements for innovation, financial independence, and climate responsiveness. Unsolicited proposals must now demonstrate value for money, environmental sustainability, and support transparent procurement processes. Once the prefeasibility proposal meets these requirements, it will be forwarded to the relevant minister for approval. |
| 14-15 – Feasibility study | Required a feasibility study to be conducted by the contracting authority after approval of the prefeasibility study, the contents of which is set out in Regulation 15. Necessary components of the study included economic, technical, financial analyses, and general project output specifications. | Introduces additional requirements for the contents of the feasibility study. These include detailed technical output specifications of the project and targeted performance standards, as well as demonstration that the project is revenue self-sufficient and climate responsive. |
| Part V – Public Private Partnership Facilitation Fund (the Fund) | Established the foundational framework for the Fund. It outlined the Fund's objective to support the implementation of PPP projects by providing financial assistance for feasibility studies, project development, and related costs. The focus was on establishing a financial support system without detailed operational procedures or stringent oversight mechanisms. |
Enhances the structure and specificity of the Fund's operation by:
|
| 35A – Procedure for exemption of solicited projects from competitive bidding | Did not explicitly specify the exemption procedure for solicited projects. | Gives effect to the amendment introduced by section 15 of the PPP Act that grants the Minister responsible for PPP (i.e. the Minister of Finance), the power to exempt a project from the competitive bidding process in certain scenarios, such as cases of urgency or lack of reasonable alternatives. Upon receiving a valid exemption, contracting authorities can directly negotiate terms of the PPP agreement with selected private entities. |
| 58 – Preferred and reserved bidders | Contained a process with multiple steps and entities, with notifications to preferred and reserve bidders taking up to twenty-one (21) working days. | Reduces the notification timeframe, requiring the PPP Centre and contracting authority to notify the preferred and reserve bidders within fourteen (14) working days after approval from the PPP Steering Committee. |
| 61A – Special Purpose Vehicle (SPV) | Did not require the establishment of a SPV. | Introduces specific rules for the establishment of a SPV in accordance with the PPP Amendment Act, detailing procedures for potential part ownership by the contracting authority. The SPV must be incorporated in Tanzania and the contracting authority may invest in its shares (up to a maximum shareholding of 25 per cent) if it can demonstrate the necessary financial capability and capacity to bear/mitigate project implementation risks. |
| 71A – List of PPP prequalified experts | Did not include mention of a list of experts. | Introduces a provision for the PPP Centre to maintain a list of prequalified PPP experts that can advise Government bodies. The list will be reviewed periodically to ensure effective procurement of expert services. |
| 127A – Public disclosure requirements | Did not include any public disclosure requirements. | Mandates the public disclosure of key details about PPP agreements within thirty (30) days of signing, including financial obligations and project specifics. |
Streamlined processes
Like in the PPP Amendment Act, the amendments eliminate the requirement for submitting concept notes prior to the prefeasibility study, expediting the initial approval process. The concept note, which was often a procedural formality, has been absorbed into the updated prefeasibility study.
Notification timeframes have also been accelerated. By reducing the timeframe from up to twenty-one (21) working days to a maximum of fourteen (14) working days for all parties involved, the entire bidding process has been streamlined. Further, mirroring the changes introduced by the PPP Amendment Act, the introduction of a formal process exempting certain projects from the competitive bidding process will improve efficiency and reduce uncertainty for projects that are seeking sole sourced procurement. By clearly defining the criteria for exemption, the process is also less open to abuse and urgent, essential projects can be prioritised transparently.
Together, these efficiency improvements will help PPP projects to be developed and deliver benefits to the country sooner, as well as increasing Tanzania’s appeal as a destination for investments in infrastructure.
Stringent assessment of projects at an early stage
While the concept note has been removed, the PPP Amendment Regulations expand on and clarify other requirements in the project evaluation process. The prefeasibility study now cannot be submitted unless it provides the information specified in the new Regulation 3A. These information requirements aim to cover the same ground as the concept note. However, where the concept note was more of a formality with little indication as to the level of detail required e.g. “affordability assessment”, the new conditions for the prefeasibility study are much more detailed and focused, with guidance as to how the topics should be assessed e.g. “for fiscal affordability, evaluating the extent and nature of likely government support requirements under the project, and the amount and duration as well as likely timing for such financial support”. The content requirements for the prefeasibility study still exist alongside this in Regulation 6, but have been updated to more closely match Regulation 3A. Contracting authorities will therefore need to ensure that the prefeasibility study complies with both regulations before it is submitted.
These changes will mean that prefeasibility studies are more detailed and standardised, making it easier for the PPP Centre to assess which projects are worthy of approval. The hope is that the greater level of detail and scrutiny involved in the prefeasibility study will help to weed out unsuitable projects at an earlier stage, avoiding wasted time and cost. However, the process needs to be managed properly so that potentially valid projects are not rejected due to contracting authorities failing to meet the stricter criteria as a result of the increased administrative burden.
Removal of investment barriers
Significant obstacles have been cleared to encourage unsolicited proposals. The removal of the commitment deposit requirement lifts a significant financial burden off private parties, particularly investors with limited funds ringfenced for preliminary matters prior to obtaining project financing.
Additionally, capping the review fee at USD 50,000 regardless of project size encourages the submission of larger, more transformational projects without the deterrent of excessive preliminary costs. Together, these changes lower the entry barriers to participation in PPP projects in Tanzania and dissuade investors from turning to other markets.
Efficient allocation of financial support
The overhaul of the Fund has resulted in more structured and transparent guidelines for the allocation of financial support. This includes clear eligibility criteria and recovery mechanisms, ensuring that funds are used fairly to support viable and strategically important projects. Projects that have difficulty meeting the affordability criteria, but perform important social functions, can therefore be better supported and remain eligible for selection as a PPP project.
Greater transparency and accountability
Transparency and accountability of decision making is also brought to the fore by the PPP Amendment Regulations. Use of the Fund must be publicly disclosed and a contracting authority will now have to be confident that their selection of a PPP project is justifiable as it is required to publish the highlights and rationale of the agreement on its website and in a prominent newspaper. This will help to ensure that the PPP projects align with public interests and regulatory standards.
Modernisation in line with global sustainability trends
Finally, the integration of climate responsiveness into the regulatory framework aligns Tanzania’s PPP projects with global sustainability trends. This forward-thinking approach not only mitigates environmental risks, but also the potential for projects to attract investors that prioritise environmental impact. Although it is currently unclear how much weighting will be given to climate responsiveness as part of the overall assessment, investors should actively consider how their project can be made more climate responsive to increase the likelihood of a successful bid and deliver benefits to the planet at the same time.
Conclusion
The amendments to the PPP Regulations create a more streamlined, transparent, and competitive environment for PPPs in Tanzania. By reducing procedural delays, lowering cost barriers, incorporating environmental standards, and improving the governance of financial support, the amendments are set to boost infrastructure development and enhance public service delivery through PPPs. As with the PPP Amendment Act that came before it, the PPP Amendment Regulations are a welcome development that solidify Tanzania’s status as an attractive destination for foreign investors.
If you have any questions about the Tanzania Public Private Partnership Regulations Amendments, 2023 please contact us.
End